Question: The Bohne Company produces chocolate candies. The chocolates sell for $12 per box. Annually, the company produces 10,000 boxes of chocolates and sells 9,000 boxes of the candies. The company’s cost information includes the following:
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Direct materials
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$2.00 per unit
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Direct labor
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$3.00 per unit
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Fixed manufacturing overhead
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$20,000
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Fixed selling and administrative expenses
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$5,000
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Variable manufacturing overhead
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$1.00 per unit
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Variable selling and administrative expenses
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$3.00 per unit
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(a) Compute the unit product cost under absorption costing.
(b) Compute the unit product cost under variable costing.
(c) Prepare an income statement using absorption costing.
(d) Prepare an income statement using variable costing.
(e) Explain the difference of $2,000 in the net operating income determined under the absorption and variable costing methods.